American Eagle Outfitters 2014 Annual Report Download - page 35

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Table of Contents
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have market risk exposure related to interest rates and foreign currency exchange rates. Market risk is measured as the potential
negative impact on earnings, cash flows or fair values resulting from a hypothetical change in interest rates or foreign currency exchange rates
over the next year.
Interest Rate Risk
Our earnings are not materially affected by changes in market interest rates as a result of our short-term investments. If our Fiscal 2014
average yield rate decreases by 10% in Fiscal 2015, our income before taxes will decrease by approximately $0.1 million. Comparatively, if
our Fiscal 2013 average yield rate had decreased by 10% in Fiscal 2014, our income before taxes would have decreased by approximately
$0.1 million. These amounts are determined by considering the impact of the hypothetical yield rates on our cash and investment balances and
assumes no change in our investment structure.
Foreign Exchange Rate Risk
We are primarily exposed to the impact of foreign exchange rate risk primarily through our Canadian operations where the functional
currency is the Canadian dollar. The impact of all other foreign currencies is currently immaterial to our financial results. We do not utilize
hedging instruments to mitigate foreign currency exchange risks. A hypothetical 10% movement in the Canadian dollar exchange rate could
result in a $5.8 million foreign currency translation fluctuation, which would be recorded in accumulated other comprehensive income within
the consolidated balance sheets. An unrealized loss of $9.9 million is included in accumulated other comprehensive income as of January 31,
2015.
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